Entrepreneurship Rates Fell in 2011, Report Finds

March 24, 2012

Although the number of new business startups fell 5.9 percent in 2011, entrepreneurship rates in the United States remain above pre-recession levels, a new report from the Ewing Marion Kauffman Foundation finds.

The Kauffman Index of Entrepreneurial Activity 1996-2011 (32 pages, PDF) found that about a third of American adults launched a new business venture in 2011, but that many of these startups did not hire additional staff. "The Great Recession has pushed many individuals into business ownership due to high unemployment rates," said Kauffman Foundation vice president of research and policy Robert Litan. "However, economic uncertainty likely has made them more cautious, and they prefer to start sole proprietorships rather than more costly employer firms. This 'jobless entrepreneurship' trend negatively affects job creation and the larger economic recovery."

According to the report, which included data from the monthly Current Population Survey, entrepreneurship activity rates for all races and ethnicities declined over the past year. The rate of business-creation by Latinos, for example, fell from 0.56 percent in 2010 to 0.52 percent, but remained high relative to previous years and other demographic groups, while business-creation rate for Asians fell from 0.37 percent to 0.32 percent.

The report also found that, with the exception of the Northeast, entrepreneurial activity rates declined in every region of the country. Arizona saw the highest startup growth, with 520 per 100,000 adults creating businesses each month over the course of the year, followed by Texas and California (440 per 100,000 adults), Colorado (420 per 100,000 adults), and Alaska (410 per 100,000 adults). In terms of specific age groups, the entrepreneurial activity rate was highest among 45- to 54-year-olds, rising from 0.35 percent in 2010 to 0.37 percent in 2011. The 20- to 34-year-old cohort also experienced a slight increase, while the rate for 35- to 44-year-olds and 55- to 64-year-olds declined.

"Entrepreneurial activity rates reflect changing demographics," said the study's author, Robert W. Fairlie, director of the master's program in applied economics and finance at the University of California, Santa Cruz. "Despite a slight decline in entrepreneurial activity rates this year, the share of new 55- to 64-year-old entrepreneurs has risen from 14.3 percent in 1996 to 20.9 percent in 2011 due to an aging U.S. population."